Why do you think companies are concerned about how much money it costs to make a product?

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gsenviro | College Teacher | (Level 1) Educator Emeritus

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Companies are always worried (or at least concerned) about the amount of money it costs to make a product, simply because higher costs mean lower profits. Companies exist to make profits, unlike government or not-for-profit or charitable organizations. Companies also have a fixed amount of capital that has to be spent on fixed and variable costs, including the cost of physical infrastructure, raw materials, employee salaries, electricity and other utility bills, advertising, transportation, packing, storage, etc. The more money spent on production of a good, the fewer the profits (since profit is simply the difference between selling price and cost price), unless the selling price is increased (which may decrease the quantity desired, based on a product's elasticity of demand). Also, if the profit has to be kept the same, without changing its price, other costs (including advertising, etc.) will have to be decreased. In general, saving on the production cost (whether through lean operations or other practices) will directly translate into profits and hence is always a concern for the company.

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